IPPR proposes changes to UK tax system

In a recently-published paper entitled Tapering Over the Tax: Reforming taxation of income in the UK, The Institute for Public Policy Research (IPPR) has proposed major reforms to the UK’s income tax system.

According to the think tank, the present system is ‘regressive and complex’, and this makes it difficult for the Government to raise taxes fairly, effectively and without political bias.

For example, research has found that on average, the poorest 20 per cent of households pay 35 per cent of their gross income in tax – far more than the average for all other households.

To combat these issues, the IPPR has proposed two changes to help streamline and simplify the process.

Firstly, it would like to see the implementation of a single tax ‘schedule’, which would include all rates and allowances within income tax and employee National Insurance Contributions (NICs) combined. By doing this, all sources of tax would be taxed at the same rate, and on the same basis.

In addition, it has proposed that the marginal tax bands system should be replaced by a ‘formula-based’ system, which would see every taxpayer’s marginal rate dependent on their specific income.

The IPPR said: “A tax system designed in this way would be more progressive and more efficient, and would enable the Government to raise taxes more fairly and easily if required.

“By improving work incentives for low earners, as well as the variable treatment of different sources of income, perverse economic incentives and deliberate tax avoidance would be reduced.”

It is thought that if implemented, the changes would have a significant impact on revenue-raising potential and could provide an extra £6 billion extra revenue to the UK economy.